How To Invest In Oil With Mutual Funds And Etfs

Exchange-traded funds (ETF’s) and mutual funds are two financial instruments that investors can use if they want to invest in oil. Oil is a commodity, such as natural gas, gold, silver, wheat and corn and investing in oil, like commodities in general, can be a good way for investors to diversify their portfolio and mitigate inflation risks. ETF’s and mutual funds share some basic similarities, but both have their own distinct pros and cons.

For starters, both mutual funds and ETFs offer broad diversification and professional management. However, ETFs tend to sport lower expenses than mutual funds. When choosing which one to use, it really comes down to the individual investor and what their goals and strategies are. For example, ETF’s are traded like stocks, meaning they can be sold short, bought on margin or even used in options trading. This gives the investor plenty of choices on how they would like to play the market on any given day. Mutual funds are traded by a fund manager, who has certain restrictions on what they can and cannot do according to the fund’s investment objective.  Sales and purchases can only be made once per day after the market closes, however, making mutual funds unsuitable for rapid traders (which isn’t recommended, anyway).

Oil and gas investments, along with other asset based investment vehicles is a good way to keep your portfolio balanced. There are several different oil and gas companies that are publicly traded on the open markets these days. Whether you choose to manage your own investments or have someone else take care of the details, some homework should be done with regard to the companies you choose to invest your money with. Potential investors should figure out what their goals are and what type of risk they are comfortable with taking when it comes to choosing a strategy.

There are several online resources that offer charts, performance history and news updates about all publicly traded companies. It is imperative that investors realize that when dealing with investments; whether they are stocks, bonds, mutual funds or ETF’s there is risk involved. You should never invest in any asset you don’t fully understand. Doing so is the quickest and easiest way to lose money in the markets.

For everything you would ever need to know and more about oil mutual funds (or mutual funds of any kind, for that matter), I highly recommend signing up for a free account at Morningstar to gain access to some of their excellent tools. Or you can get $20 off a one year subscription for an Annual Premium Membership at Morningstar using the above link.